The Hyderabad-Mirpurkhas dual carriageway project is the first infrastructure road public-private partnership (PPP) project in Pakistan that would take time to structure and implement it. A spokesman of Sindh Finance Department has clarified the story published in Business Recorder on May 6 as under:
Comparable project in India (Jaipur-Kishangarh Road) took over 4 years to reach financial closure while our project is in the advance stages of financial closure in only one and a half years. The financial term sheet has been almost agreed upon by all the parties and financing documents are being prepared by the most renowned commercial lawyer in Pakistan. Needless to mention, the construction works are already underway and earthworks over 10 km have already been undertaken.
International Best Practices were thoroughly followed in this project which included that renowned international and national consultants were considered while structuring this project which included Mot McDonald (MM Pakistan), Engineering Associates Consulting, Ernst & Young Pakistan. The legal and technical assistance was further provided by international ADB consultant Jacques Cook and Rachna Gupta.
The detailed Engineering and Design of this road has been done by Sambo Engineering (Korea). Hence it is quite irrelevant and baseless to presume that the project is being taken up through lack of competence and mismanagement. The PPP Unit Sindh comprises specialised professionals in their fields and most of them are foreign qualified in their respective domain. This unit has been trained with requisite PPP skills and is well endowed with project structuring skills.
The news item in question has referenced some facts which are not related to this project, like it was never envisaged that the project would be able to raise debt at 8 percent from the commercial banks. Instead, it was envisaged that the commercial debt would be raised based on industry practices where banks would be able to earn a reasonable spread while the financial arid economic viability of the project would remain intact.
The banking consortium is fully aligned with this project and actively pursuing the financial close. Hence, it is not correct that project is facing any fund shortage. It is also entirely baseless and misleading that Deokjae Construction Company has asked government of Sindh to prepare any PC-1 to get Rs 2.2 billion loan from bank at 8 percent interest rate.
Another issue which has been raised in the news clipping is that banks have refused to lend the project at 8 percent, and offered to lend at market rate. That is exactly what every sane person would want. The Government of Sindh is fully aware that PPP market is to be developed on the basis of existing marketing norms and any distorted practice would not give good name to the PPP interventions.
The Minimum Revenue Guarantee (MRG) that was mentioned is going to be a bridge financing arrangement and it will be returned to the Government of Sindh after repayment of commercial debt. MRG would accrue interest at 4 percent during commercial debt period and would incur 8 percent interest on to the commercial debt is paid. Furthermore, it is not going to be injected in the project at the start; instead, it is structured as deferred payments over the commercial debt period.
Additionally, if the project revenues and profits turn out to be higher than the projected numbers then it is very likely that there would be no MRG required. This is very much possible as the projected revenues were based on 12,000 vehicles volume while according to independent sources the road already has traffic volume of around 15,000 vehicles.
In a similar manner, the soft loan that would be injected at the construction stage would also accrue interest at 4 percent during commercial debt period, then would incur 8 percent interest once the commercial debt is paid. All these Government of Sindh intervention will be returned to the Government with a profit, while comparable projects in India and the region usually provide non-refundable upfront grant to such projects, which amount to 40 percent to 50 percent of the total project costs.
Taking that as benchmark, this project would have required upfront 'Viability Gap Fund' to the tune of Rs 3000 million as grant. Thus, Government of Sindh has endeavoured its best to structure a deal that has minimum upfront grant or subsidy to the project as compared to the Indian PPP model.
Hyderabad Mirpurkhas Dual Carriageway Project is a landmark PPP project that would drastically improve the access between Hyderabad and Mirpurkhas, which arc major commercial hubs of the province. The Dual Carriageway would reduce the travel time between the two cities from 84 minutes to 42 minutes.
According to independent consultant's estimates, the economic efficiencies arising from the project would amount to over Rs 136 billion over the concession period and generate over Rs 32 billion in different taxes and fees for the Government during the concession period and job creation of over 10000 direct and indirect jobs for local people.
At the end of the concession period, a well maintained and world class dual carriageway would be handed over to the Government at no cost. The dual carriageway will be a stepping stone in connecting the coal reserves of Thar to the major towns of Sindh, which will expedite the process of their utilisation. Besides, Mirpurkhas is a strategic city in terms of defence needs of the country as well; so the dual carriageway would also enable quicker mobilisation of forces in times of conflict.
In these difficult times, when the public sector is already squeezed for funds, projects under the PPP modality can provide the impetus for infrastructure development and sustainable economic progress with the help of private sector. It is strongly believed that Hyderabad-Mirpurkhas dual carriageway will be a beacon on this new horizon of growth.-PR
BR Reporter adds: Although the Finance Department, Government of Sindh, has clarified the news item, there are still some ambiguities, which need to be clarified further. Why the concerned authority has undertaken only 10 km earthworks, despite signing the agreement in this regard in November, 2009? Why the financial close has not been done so far?